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European fertilizer output cuts pose risks for food prices

Fertilizer makers cutting output because of surging natural gas prices, adding to the growing risks for global food inflation.

Bloomberg, Content provider

March 9, 2022

2 Min Read
iamporpla / Getty Images Plus

By Stephen Treloar

European fertilizer makers, including Yara International ASA and Borealis AG, are cutting output because of surging natural gas prices, adding to the growing risks for global food inflation.

Russia’s invasion of Ukraine has roiled commodities markets and propelled natural gas -- the feedstock of nitrogen fertilizers  -- to record levels. That’s forcing producers to curb ammonia output, pushing up farm input costs and adding to the risks of worldwide food shock.

Yara is temporarily curtailing production at Ferrara in Italy and Le Havre in France, the Oslo-based company said on Wednesday. Output of ammonia and urea at its European facilities will be just 45% of capacity by the end of this week. The two plants produce 1 million tons of ammonia and 900,000 tons a year of urea between them. 

Natural gas is used as a feedstock for nitrogen fertilizers, usually accounting for around 80% of a manufacturer’s costs. European gas futures are now about 10 times higher than a year ago. Global food prices jumped to a record last month, just as war started in the world’s breadbasket.

Yara shares fell 0.4% as of 2:32 p.m. in Oslo trading, after earlier dropping as much as 2.7%. The stock has declined 11% this year. 

Borealis, another European fertilizer producer, is reducing its ammonia production capacity as a result of the current high price. It’s also considering stopping production for “economical reasons,” Corporate Communications Manager Virginia Wieser said in an emailed response to questions.

Hungarian producer Nitrogenmuvex is temporarily halting output of ammonia. “In a few days our fertilizer plants will also shut down, as we have limited ammonia storage capacity,” Zoltan Bige, chief strategy officer, said in an email.

Virtually every major crop in the world depends on inputs like potash and nitrogen, and without a steady stream, farmers will have a harder time growing everything from coffee to rice and soybeans. Russia is also a key supplier for fertilizers. 

Soaring gas prices are hitting all energy-intensive industries, with paper makers Norske Skog ASA and Pro-Gest SpA halting mills in Austria and Italy this week. Pro-Gest said that the selling price of a ton of paper was lower than the cost of the energy required to make it.

In Northern Italy, several steel mills have also announced stops to production, with the intention of resuming activities once prices go down. About 1,500 staff could be placed on temporary furloughs, according to the Corriere del Veneto newspaper.

--With assistance from Elizabeth Elkin, Megan Durisin, Alessandro Speciale, Samuel Gebre and Veronika Gulyas.

© 2022 Bloomberg L.P.

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